Share-Based Compensation

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

Share-based compensation expense is included in costs and expenses in the accompanying Unaudited Consolidated Condensed Statements of Income and Comprehensive Income as follows:

	Three Months Ended March 31,
	2014		2013
	(in thousands)
Share-based compensation expense:
Cost of revenues	$	17	$	12
Sales and marketing		109		35
Technology support		57		60
General and administrative		104		79
Share-based compensation costs		287		186
Amount capitalized to internal use software		1		-
Total share-based compensation costs	$	286	$	186

Service-Based Options.  The Company granted the following service-based options for the three months ended March 31, 2014 and 2013:

	Three months ended March 31,
	2014		2013
Number of service-based options granted		391,750		57,000
Weighted average grant date fair value	$	7.47	$	2.19
Weighted average exercise price	$	16.89	$	4.01

These options are valued using a Black-Scholes option pricing model and generally vest one-third on the first anniversary of the grant date and ratably over twenty-four months thereafter.  The vesting of these awards is contingent upon the employee’s continued employment with the Company during the vesting period.

Performance-based Options.  During the three months ended March 31, 2014, the Company granted 40,000 performance-based inducement stock options  in connection with the acquisition of AutoUSA (“AutoUSA Inducement Options”), with a weighted average grant date fair value of $6.08, using a Black-Scholes option pricing model and weighted average exercise price of $13.62.  The AutoUSA Inducement Options are subject to two vesting requirements and conditions: (i) level of achievement of performance goals based on revenue and gross margin of the Company’s retail dealer services group and (ii) time vesting.  In addition, the Company granted 10,000 inducement options to a new employee with a weighted average grant date fair value of $6.85, using a Black-Scholes option pricing model and weighted average exercise price of $14.93.  These inducement options vest one-third on the first anniversary of the grant date and ratably over twenty-four months thereafter.

During the three months ended March 31, 2013, the Company granted 87,117 performance-based stock options (“2013 Performance Options”) to certain employees with a weighted average grant date fair value of $2.19, using a Black-Scholes option pricing model and a weighted average exercise price of $4.00.  The 2013 Performance Options were subject to two vesting requirements and conditions: (i) percentage achievement of 2013 revenues and earnings before taxes, depreciation and amortization (“EBITDA”) goals and (ii) time vesting.  Based on the Company’s 2013 revenues and EBITDA performance, 83,398 of the 2013 Performance Options vested under the performance vesting condition, and one-third of these options vested on the first anniversary of the grant date, with the remainder vesting ratably over twenty-four months thereafter.

Market Condition Options.  In 2009, the Company granted 213,650 stock options to substantially all employees at exercise prices equal to the price of the stock on the grant date of $1.75, with a fair market value per option granted of $0.97, using a Black-Scholes option pricing model.  One-third of these options cliff vested on the first anniversary following the grant date and the remaining two-thirds vest ratably over twenty-four months thereafter.  In addition, the remaining two-thirds of the awards were subject to satisfaction of market price conditions for the Company’s common stock, which conditions have been satisfied. During the three months ended March 31, 2014 and 2013, 10,793 and 4,000 of these market condition stock options were exercised, respectively.

During the three months ended March 31, 2014, 73,603 stock options (inclusive of the 10,793 market condition stock options exercised during the period) were exercised, with aggregate weighted average exercise prices of $4.25.  There were 8,000 stock options (inclusive of the 4,000 market condition stock options exercised during the period) exercised during the three months ended March 31, 2013 with aggregate weighted average exercise prices of $2.43.  The grant date fair value of stock options granted during these periods was estimated using the Black-Scholes option pricing model using the following weighted average assumptions:

	Three Months Ended March 31,
	2014			2013
Dividend yield		—			—
Volatility		56	%		72	%
Risk-free interest rate		1.3	%		0.6	%
Expected life (years)		4.3			4.3